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FEDERAL RESERVE BANK
OF NEW YORK
J
Circular No. 10489 "I
November 18, 1991
[
1992 FEE SCHEDULES FOR PRICED SERVICES
— Check Collection, ACH, Funds Transfer and Net Settlement, Book-Entry Securities,
Definitive Securities Safekeeping, Noncash Collection, Special Cash Services,
and Electronic Connections
— Private Sector Adjustment Factor (PSAF)
To All Depository Institutions, and Others Concerned,
in the Second Federal Reserve District:
The Board o f Governors o f the Federal Reserve System has announced the adoption of new fee schedules for
services provided by Federal Reserve Banks, effective January 1, 1992. Following is the text of a statement issued
by the Board of Governors in that regard, including notice of the Board’s approval of the 1992 Private Sector Ad
justment Factor (PSAF) for Federal Reserve priced services:
The Federal Reserve Board has announced the 1992 fee schedules for services provided by the Reserve Banks. The
fees become effective January 1, 1992.
The fee schedules apply to check collection, automated clearing house, funds transfer and net settlement, book-entry
securities, definitive safekeeping, noncash collection, special cash services, and electronic connections to the Federal Re
serve. The 1992 fee schedules are available from the Reserve Banks.
In 1992 total costs for priced services, including float and the Private Sector Adjustment Factor (PSAF), are projected
to be $781.3 million. Total revenue is projected to be $785.6 million, resulting in a 100.6 percent recovery rate. The fees
for 1992 are based on total costs, including the PSAF, but excluding special project costs.
At the same time, the Board approved the 1992 PSAF for Reserve Bank priced services of $79.9 million, a decrease
of $5.9 million or 6.8 percent from the $85.8 million targeted for 1991.
The PSAF is an allowance for the taxes that would have been paid and the return on capital that would have been
provided had the Federal Reserve’s priced services been furnished by a private business firm.
Printed on the following pages is the text of the Board’s official notice in this matter, which has been reprinted
from the Federal Register o f November 6. Requests for additional information regarding our priced services may
be directed to your Account Manager, Tel. No. 212-720-6600 (at the Head Office), or Tel. No. 716-849-5108 (at
the Buffalo Branch).
New fee schedules for check services and revised fee schedules for certain other priced services offered by this
Bank will be sent to you as soon as they are available.
E. G e r a l d C o r r i g a n ,
President.
FEDERAL RESERVE SYSTEM
[Docket R-C739]
Federal Reserve Bank Services
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Notice.
SUMMARY: The Board has approved a
Private Sector Adjustment Factor
("PSAF") for 1992 of $79.9 million, as
well as 1992 fee schedules for Federal
Reserve priced services. These actions
were taken in accordance with the
requirements of the Monetary Control
Act of 1980, which requires that fees for
Federal Reserve priced services be
established on the basis of all direct and
indirect costs, including the PSAF. The
Board also has authorized Reserve
Banks to make certain minor price and
service level changes within specified
parameters during 1992 without prior
Board review.
EFFECTIVE d a t e : The PSAF, the fee
schedules, and the price and service
level change categories subject to the
modified approval procedures become
effective January 1,1992.
FOR FURTHER INFORMATION CONTACT:
For questions regarding the Private
Sector Adjustment F actor Gregory
Evans, Senior Accounting Analyst, (202/
452-3945), Division of Reserve Bank
Operations and Payment Systems; for
questions regarding fee schedules:
Kathleen M. Connor, Senior Financial
Services Analyst, Check Payments (202/
452-3917), Tina Slater, Senior Financial
Services Analyst, Electronic Payments
(202/452-2539), Felicia Cataldo,
Financial Services Analyst, Securities
(202/452-2223) or James Epps, Senior
Financial Services Analyst, Cash (202/
452-2222), Division of Reserve Bank
Operations and Payment Systems; for
the hearing impaired only:
Telecommunications Device for the
Deaf, Dorothea Thompson (202/4523544),
Copies of the 1992 fee schedules for
check collection, automated clearing
house, funds transfer and net settlement,
book-entry securities, definitive
safekeeping, noncash collection, special
cash services, and electronic
connections to the Federal Reserve, are
available from the Reserve Banks
SUPPLEMENTARY INFORMATION:
Private Sector Adjustment Factors
(PSAF)
The Board has approved a 1992
Private Sector Adjustment Factor
(PSAF) for Federal Reserve Bank priced
services of $79.9 million. This amount
represents a decrease of $5.9 million or
6.8 percent under the PSAF of $85.8
million targeted for 1991.
The Monetary Control Act of 1980
requires that fee schedules for the
Federal Reserve’s priced services
include an allocation of imputed costs
for “taxes that would have been paid
and the return on capital that would
have provided had the services been
furnished by a private business firm.’’
These imputed costs are based on data
developed in part from a model
comprised of the nation’s 50 largest
bank holding companies (BHCs).
Briefly stated, the methodology, which
is unchanged from last year, first entails
determining the value of Federal
Reserve assets that will be used directly
in producing priced services during the
coming year, including the net effect of
assets planned to be acquired or
disposed of during the year. Short-term
assets are assumed to be financed by
short-term liabilities; long-term assets
are assumed to be financed by a
combination of long-term debt and
equity.
Imputed capital costs are determined
by applying related interest rates and
rates of return on equity derived from
the bank holding company model to the
assumed debt and equity values. The
rates drawn from the BHC model are
based on consolidated financial data for
the 50 largest BHCs (in terms of asset
size) in each of the last five years.
Because short-term debt, by definition,
matures within one year, only data for
the most recent year are used for
computing the short-term debt rate.
Capital costs, together with
imputations for estimated sales taxes,
FDIC insurance assessment on clearing
balances held with the Federal Reserve
to settle transactions, and expenses of
the Board of Governors related to priced
services, comprise the PSAF.
Details regarding the derivation of the
PSAF are as follows:
Assef Base
The estimated value of Federal
Reserve assets to be used in providing
priced services in 1992 is reflected in
Table 1. Table 2 shows that the value of
assets assumed to be financed through
debt and equity are projected to total
$563.6 million. As shown in Table 3, this
represents a net increase of $32.9 million
or 6.2 percent from 1991. This increase
results primarily from planned 1992
capital expenditures for Reserve Bank
building projects and the full year effect
of 1991 bank premises capital
expenditures.
Cost o f Capital, Taxes and Other
Imputed Costs
Table 3 shows the financing and tax
PRINTED IN NEW YORK, FROM F E D E R A L
2
R E G IS T E R ,
rates as well as the other required PSAF
recoveries proposed for 1992 and
compares them with the rates used for
developing the PSAF for 1991. The large
decrease in the pre-tax return on equity
rate from 14.5 percent in 1991 to 10.7
percent for 1992 is attributed to the
weaker 1990 financial performance of
the BHCs included in the model relative
to the 1985 BHC performance that was
included in the 1991 calculation.
Capital Adequacy
A shown in table 4, the amount of
capital imputed for the proposed 1992
PSAF totals 30.9 percent of riskweighted assets, well above the 8
percent capital guideline for state
member banks and BHCs.
1992 Fee Schedules
The Monetary Control Act requires
that, over the long run, fees for Federal
Reserve priced services be established
on the basis of all direct and indirect
costs incurred in providing the priced
services, including the PSAF. Total
revenue for all Federal Reserve services
must, in the aggregate, recover all costs,
including the PSAF. The Board’s pricing
principles state that fees will be set so
that revenues match costs (including the
PSAF) for major service categories. The
Board may set fees for a service line
that do not fully recover costs, in the
interest of providing an adequate level
of services nationwide.
Last year the Board approved fees
that were set to recover 101.0 percent of
the costs of providing priced services in
1991, including the PSAF and the cost of
float. Through the first eight months of
1991, the System recovered 102.0 percent
of total costs. The Reserve Bank
estimate that total 1991 costs, including
the PSAF, will be $754.4 million. Total
revenue is estimated to be $758.3
million, which would result in a 100.5
percent recovery rate.1
In 1992, total priced services costs,
including the PSAF, are projected to be
$781.3 million. Total revenue is
projected to be $785.6 million, which
would result in a 100.6 percent recovery
rate. Since 1984, as the table below
shows, the System experience has
moved closer to a targeted 100 percent
recovery of costs.
1The magnitude of the revenue and cost data
reflected in this memorandum differs from that
reported in the Board's Annual Report. In this
memorandum, income on clearing balances and the
cost of earnings credits are included on a net basis
while they are reflected in gross amounts in the
Annual Report. In addition, the credit to expenses
resulting from accounting for pensions in
accordance with FASB 87 is not reflected in price
setting for individual services and is not included in
this memorandum.
VOL. 55, NO. 215, pp. 56646-56652
Total Priced Financial Services
($ millions)
Total cost
1 9 84.................................................................................................................................................................................................
19 85..................................................................................................................................................................................................
19 86..................................................................................................................................................................................................
1 9 87..................................................................................................................................................................................................
19 88..................................................................................................................................................................................................
19 89..................................................................................................................................................................................................
1 9 90.................................................................................................................................................................................................
1991 est...........................................................................................................................................................................................
1992 proj..........................................................................................................................................................................................
The total costs in the table do not
include special projects, which are
projected to total $4.5 million in 1992
and which are not considered when
establishing priced service fees.
Inclusion of special project costs would
reduce the estimated 1991 and projected
1992 recovery rates to 100.3 percent and
100.0 percent, respectively.
Following is a discussion of estimated
1991 and projected 1992 financial
performance, and 1992 fees for the
individual priced services.
Check Collection
Estimated 1991 and projected 1992
cost recovery performance for the
commercial check service is shown in
the table below.
($ million)
Total cost
1991........
1992........
572.7
588.2
Total
revenue
578.2
592.7
Recovery
rate
101.0%
100.8%
Inclusion of special project costs would
reduce the 1991 and 1992 recovery rates
to 100.6 percent and 100.2 percent,
respectively. Special project costs in
1991 relate to research and development
of the application of image technology to
the check service. Special project costs
in 1992 relate to automation
consolidation 2 and the check image
project.
Overall, 1992 check collection costs,
including PSAF, are expected to
increased 2.6 percent, while 1992 volume
is expected to be flat, with a projected
increase of 0.1 percent from 1991.
Forward check collection processed
volume is projected to increase 0.2
percent in 1992, compared to an
estimated 0.5 percent decrease in 1991.
2 The Federal Reserve Banks are consolidating
their general purpose, mainframe-based data
processing at three sites. The proposed special
project for automation consolidation will capture
the transitional expenses associated with the
automation consolidation sites.
Accordingly, the Board anticipates that
unit costs will begin to increase in the
future.
Fifty-four percent of the 1992 fees for
the check collection service (excluding
ITS fees, which are discussed below)
are the same as those currently in effect.
The 1992 fees result in a 3.0 percent
weighted average increase in forward
and return check collection fees; the
increase in forward collection fees is 1.3
percent, while the increase in return
items fees is 13.6 percent. Systemwide,
768 processed forward collection fees
would remain unchanged, 350 fees
would increase, and 132 fees would
decrease.
The forward collection per item fees
include tiered pricing for selected check
deposit products in twenty Federal
Reserve offices. Under a tiered pricing
structure, different fees are assessed
depending on whether a check is
presented to a high-cost or low-cost
endpoint in a given check collection
zone. The Board approved tiered pricing
as a permanent fee structure in the
Minneapolis and Kansas City offices in
1986. In January 1991, seven additional
offices implemented tiered pricing. In
May 1991, the Board adopted
modifications to the criteria for offering
a tiered pricing structure in the Federal
Reserve’s check collection service (56
FR 22168, May 14,1991). The revised
criteria are as follows:
(1) Tiered pricing may be applied to
deposits in any collection zone,
provided clear cost differences exist
between groups of checks within that
collection zone;
(2) Tiered prices may be used only
where they have the potential to provide
net savings for a substantial number of
depositing institutions or a substantial
amount of deposited volume;
(3) A blended per item fee will be
offered as an alternative to tiered prices
for each deposit category; and
(4) Federal Reserve Banks may offer
more than two tiers within a collection
3
519.1
571.2
599.3
627.3
67 47
730.3
735.3
754.4
781.3
Total
revenue
559.8
603.8
627.7
649.7
667.7
718.7
746.5
758.3
785.6
Recovery
rate
(percent)
107.8
105.7
104.7
103.5
99.0
98.4
101.5
100.5
100.6
Variation
from 100
(percent)
7.8
5.7
4.7
3.5
1.0
1.6
1.5
0.5
0.6
zone, provided clear cost differences
exist to justify them.
The revised criteria will enable
Federal Reserve Banks to set fees that
more precisely reflect their costs to
collect checks drawn on paying banks
within a given check collection zone.
These costs are generally based on the
location of, and volume of checks
presented to, each endpoint.
An additional eleven offices will
implement tiered pricing in 1992. All
twenty offices implementing 1992 tiered
fees meet the Board’s criteria of offering
a tiered pricing structure. Beginning in
1992, there Reserve Bank offices will
automatically assess tiered fees unless
the blended fee is requested by the
depositor. A tiered pricing structure will
be applicable to approximately 30
percent of total Federal Reserve check
volume in 1992.
The weighted average increase in
returned check fees is 13.7 percent,
excluding fine sort, compared to an
increase in 1991 fees of 8.9 percent. Of
the 848 returned check fees, excluding
fine sort, 270 would remain unchanged,
553 would increase, and 25 would
decrease. Return item volume is
projected to decrease 0.7 percent, with
the proportion of total returns that are
qualified, rather than deposited as raw
returns, increasing slightly from an
estimated 90.7 percent in 1991 to 91.4
percent in 1992.
A weighted average fine sort fee
increase of 2.5 percent for both forward
collection and return items was also
approved. Of the fine sort fees, 353
would remain unchanged, 94 would
increase, and 24 would decrease. Fine
sort volume is projected to decrease 0.2
percent in 1992, compared to an increase
of 1.1 percent in 1991.
A new payor bank services fee
structure will be fully implemented in all
twelve Reserve Bank offices in 1992. The
fee structure, approved in June 1990, will
result in a uniform approach to pricing
of payor bank services, including
extended MICR capture and truncation
services.8 Seven Reserve Banks
implemented the new structure in 1991.
The Boston, New York, Philadelphia,
Chicago, and San Francisco Reserve
Banks will implement the new structure
in 1992.
With regard to the Interdistrict
Transportation System (ITS), 15 percent
of the 4,512 prices would not change
from those currently in effect, 33 percent
would increase, and 52 percent would
decrease. The weighted average ITS
weekday fee will increase 15.9 percent,
compared to 7.7 percent decrease in
weekend fees. ITS fees are charged
explicitly to consolidated shippers and
are imbedded in the mixed or Other Fed
per-item check collection fees charged
by Federal Reserve Bank offices. ITS
volume is projected to increase
approximately 2.5 percent in 1992.
The Board has approved modifying 52
check collection deadlines for 1992.
Most deadline changes will extend the
current deadlines by times ranging from
15 minutes to 1 hour.
Autom ated Clearing House (ACH)
Estimated 1991 and projected 1992
cost recovery performance for the
commercial ACH service is shown in the
following table.
(S millions)
Total cost
1991........
1992........
58.9
64.7
Total
revenue
58.8
648
Recovery
rate
99.9%
100.1%
Total 1992 costs do not include the
automation consolidation special
project, which would reduce the Reserve
Banks’ 1992 projected recovery rate to
99.4 percent.
The Reserve Banks expect commercial
ACH volume to increase 17.6 percent in
1992, which is lower than the estimated
19.7 percent growth rate for 1991. A
slower growth rate has been the general
trend over the years, as the ACH volume
base has grown. ACH unit costs have
steadily declined over the past few
years, resulting primarily from scale
economies and increased automated *
* Under the extended MICR capture service,
presentment is made to the paying bank by
electronic delivery of the MICR-line data. The
physical checks are retained by the Federal Reserve
Bank office for several days prior to delivery to the
paying bank so the Federal Reserve can return
those checks that have not been paid, following
instructions received from the paying bank. Under
the truncation service, presentment to the paying
bank is aiso made by electronic delivery of the
MICR-line data, and the Federal Reserve provides
return services. Unlike the extended MICR capture
service, the physical checks are not delivered to the
paying bank, other than on an exception basis
under the Federal Reserve’s retrieval service.
processing, as depository institutions
convert to an electronic environment.
The majority of the 1992 ACH price
changes involves nonautomated fees.
Although nonelectronic input and output
fees have increased in recent years to
better reflect the cost of providing these
ACH services, current tape and paper
fees still do not fully recover the costs
incurred. In conjunction with the allelectronic ACH initiative adopted in
June 1991, the Board approved a change
to the ACH price structure for
nonautomated input and output, in
which the tape input, nonelectronic
delivery, and mesrenger pickup fees
would be replaced by tape input and
output and paper output fees. For 1992,
the Board ha3 approved a $15.00 fee for
tape input and output, and an $8.00 fee
for paper output (compared to $4.50 or
$5.25 for output or $8.00 for input in
1991). These fees are within the
estimated price ranges included in the
Board's action on the all-electronic ACH
proposal. The Board also has approved
an increase in the diskette output fee to
$15.00, since the costs to provide this
form of output are similar to those for
tape output. The Board approved
elimination of the $0.75 differential
between messenger pickup and courier
delivery of output, which penalizes
customers that are not located near
Reserve Bank offices and thus cannot
easily use messenger pickup.
The Board has approved an increase
in the off-line telephone-originated
return and telephone advice fees
(currently $6.00 and $4.00, respectively)
to $7.00, and an increase from $4.G0 to
$5,00 in the fee for commercial returns
and notifications of change converted by
the Federal Reserve from paper to
electronic form. These fees more fully
reflect the actual costs of providing
these nonelectronic services.
Finally, the Board has approved
establishment of a standard national fee
of $1.50 for return items and
notifications of change that are
submitted through a Reserve Bank's
\ oice response system. This service is
presently offered by several Reserve
Banks, and the fee currently varies by
Reserve Bank. All Reserve Banks will
implement voice response systems by
year-end 1992.
There are no changes to the basic
ACH transaction fees. However, since
analysis has shown that the additional
cost to provide most night cycle
payment services is negligible, the Board
has approved elimination of the night
cycle credit surcharge and the non-value
debit surcharge of $0.01. The Board also
approved a reduction in the night cycle
value debit surcharge from $0.02 to
4
$0.01. In addition to better reflecting the
costs and risks of night cycle processing,
the Board believes that these fee
changes will encourage the use of the
night cycle for certain ACH payments.
Funds Transfer and Net Settlement
Estimated 1991 and projected 1992
cost recovery performance for the funds
transfer and net settlement service is
shown in the following table.
Recovery rate
$ millions
Total cost
1991
1992
......................
81.1
86.8
......................
79.6
87.2
Total
revenue
98.2%
100.4%
The costs in the table do not include the
automation consolidation special
project, which would reduce the Reserve
Banks’ 1992 projected recovery rate to
99.5 percent. Total funds transfer costs,
including the PSAF, are projected to
increase 7.0 percent in 1992. Funds
transfer volume is estimated to increase
4.5 percent in 1991 and a 4.8 percent
increase is projected in 1992. The Board
believes the 1992 forecast is optimistic
in light of banking industry
consolidations, which may limit the
future growth of funds transfers. The
unit cost of funds transfer has declined
over the past years due to scale
economies from automated processing.
In 1992, however, projected costs
associated with relocating the New York
and Dallas Federal Reserve Banks’
computer data centers, as well as
initiatives to improve contingency
backup and reliability, will increase unit
costs approximately 4 percent. To
recover the projected costs for the funds
transfer service in the upcoming year,
the Board has approved an increase in
the basic transfer fee from $.50 to $.53 in
1902.
In addition, the Board has approved
an increase in various fees associated
with handling transfers for off-line
institutions. The off-line origination
surcharge, telephone surcharge, and net
settlement telephone advice surcharge
(currently $6,00, $4 00, and $4.00,
respectively) will be set at $7.00 to
better reflect the expense of continuing
to provide these labor-intensive
services. The fee increases also reflect
the cost of the more stringent security
procedures recently implemented in
response to Article 4A of the Uniform
Commercial Code.
Book-Entry Securities
Estimated 1991 and projected 1992
cost recovery performance for the book-
entry securities service4 is shown in the
following table.
($ millions)
Total cost
1991____
1992........
11.6
12.2
Total
revenue
11.6
12.3
Recovery
rate
100.0%
101.1%
The costs do not include the automation
consolidation special project, which
would reduce the Reserve Banks’ 1992
projected recovery rate to 99.9 percent.
Book-entry securities on-line origination
volume is estimated to increase 9.1
percent in 1991 and is projected to
increase 6.4 percent in 1992. Costs are
projected to increase approximately 5
percent in 1992; this increase is
primarily attributable to costs for
development of a new book-entry
system, data communication costs, and
accounting-related overhead costs,
offset by a decrease in automation costs.
The Board has approved a fee
increase from $7.00 to $8.50 for off-line
transfers originated or received, and for
off-line reversals received, that will
more accurately reflect the cost of
processing off-line securities transfers.
The increase also 19 consistent with
Treasury’s plans to increase off-line fees
for the transfer of Treasury securities.
The increased fees also may serve as an
incentive to large volume off-line
customers to convert to on-line access
methods. All other book-entry fees will
remain unchanged from their 1991
levels.
Electronic Connections
Fees are charged for electronic
connections to the Reserve Banks for
Federal Reserve priced services. Cost
and revenue associated with electronic
access are allocated to the various
priced services based on usage.
The 1992 electronic access fees are
unchanged from 1991, except for the
‘‘gateway’’ access fee. Gateway is a
service by which depository institutions
with operations in multiple Federal
Reserve districts funnel their data
communications traffic through one
physical access point, or gateway, to
access a single service in multiple
Federal Reserve districts. A $100
monthly surcharge per participating
district was established for gateway
access in 1991. The Board has approved
a modification of the surcharge for
gateway access to more closely recover
* These financial data relate only to book-entry
transfers of Government agency securities, which
are priced by the Federal Reserve. The U.S.
Treasury establishes fees for book-entry transfers of
Treasury securities.
the associated costs. The Board has
approved a “stair-step” pricing policy, in
which the gateway surcharge increases
by $25.00 increments, depending on
progressive volume thresholds. Under
this pricing policy, a $25.00 per district
surcharge will apply forevery 100,000
ACH or check items, or 20,000 funds
transfers, or any combination thereof,
transmitted per month via the gateway
connection. Each increment of these
volume thresholds will result in
additional monthly surcharge of $25.00
per district.
Definitive Safekeeping and Noncash
Collection
Estimated 1991 and projected 1992
cost recovery performance for the
definitive safekeeping and noncash
collection service is shown in the
following table.
($ millions)
Total
revenue
Total cost
1991........
1992........
15.4
14.3
15.0
13.2
Recovery
rate
97.6%
92 .3%
There are no 1992 special project costs
related to the definitive safekeeping and
noncash collection service. Definitive
safekeeping and noncash collections
costs are estimated to decrease by 3.6
percent in 1991 and are projected to
decrease by 7.2 percent in 1992 as the
Reserve Banks continue to address
volume declines by reducing costs
through consolidation of noncash
collection processing sites. Definitive
safekeeping volume is estimated to
decrease 30 percent in 1991 and is
projected to decrease 22.4 percent in
1992. Noncash collection volume is
estimated to decrease by 14 percent in
1991 and is projected to decrease by 13.6
percent in 1992. Unit costs for this
service have been increasing steadily
over the past several years. Excluding
one-time costs for a new automated
system in the Atlanta Reserve Bank, the
System recovery rate for the combined
service is projected to be 93,2 percent.
For definitive safekeeping, the Board
has approved 1992 fee increases for nine
districts. The approved 1992 fees range
from $18.00 to $40.00 for deposit and
withdrawal transactions, including fee
increases of $2.00 to $8.00. The 1992 fees
for receipts or issues maintained range
from $1.70 to $7.20, including fee
increases of $.20 to $1.40. For purchases
and sales, the fees are $23.00 to $40.00,
including fee increases of $2.00 to $5.00.
Lastly, the reregistration fees are $11.00
to $40.00, including fee increases of $2.00
to $8.00.
5
For noncash collection, the Board has
approved fee increases for nine districts
in 1992. For the collection of local
coupons, the approved fees are $2.00 to
$5.00, including increases of $.15 to $.55.
For the collection of interdistrict
coupons, the fees are $4.00 to $6.75,
including increases of $.30 to $1.00. The
Board has approved add-on fees to the
nonmixed deposit product for
interdistrict coupons ranging from $3.25
to $6,60, including increases of $.50 to
$1.10. For return item processing and
collection of matured or called bonds,
the fees are $20.00 to $40.00, including
fee increases of $2.00 to $6.00. The Board
has approved a reduction in the
Cleveland Reserve Bank’s fee for local
coupons submitted by out-of-region
customers from $4.50 to $4.25.
Definitive securities volumes have
been declining since the mid-1980s
because there are virtually no new
issues of bearer securities and there is
continued immobilization of outstanding
definitive securities. Effective January 2,
1991, the Minneapolis Reserve Bank
began to consolidate its noncash
collection functions at the Federal
Reserve Bank of Cleveland and its
Twelfth District noncash connection
functions 8 at the Federal Reserve Bank
of Atlanta (Jacksonville Branch). In July
1991, the Board approved further
consolidation of the noncash collection
function at the Federal Reserve Banks of
Cleveland and Atlanta (Jacksonville
Branch), beginning in the fourth quarter
of 1991. Effective October 1,1991, Tenth
District noncash collection volume has
been processed at the Federal Reserve
Bank of Cleveland.6
The Reserve Banks have found it
increasingly difficult to match costs and
revenue in the noncash collection
service in light of declining volumes and
high fixed costs. The consolidation of
the noncash collection service will
reduce overall costs and enable Reserve
Banks to offer this service nationwide
and to recover costs for the foreseeable
future. Under consolidation, depository
institutions experience little change to
the service received because
consolidation sites generally charge the
same or lower prices and offer the same
or improved availability. In the near
future, the Board anticipates that it will
request public comment on a proposed
plan for management of the definitive
safekeeping service in future years in•
5 Twelfth District noncash collection volumes
were consolidated at the Federal Reserve Bank of
Minneapolis in 1984.
• Tenth District volume from the state of New
Mexico is processed at the Federal Reserve Bank of
Atlanta (Jacksonville Branch).
result in an item pass ratio that is
supported by a different floor cost;
light of the changing marketplace and
the cost structure for safekeeping of
physical securities.
Cash
Special cash services that are priced
by the Federal Reserve Banks include
cash transportation, coin wrapping,
nonstandard packaging of currency
orders and deposits, and nonstandard
frequency of access to cash services.
Estimated 1991 and projected 1992 costrecovery performance of the special
cash priced services is shown in the
table below.
[$ millions]
Total
cost ($)
19 91.....................
19 9 2 .....................
14.7
15.1
Total
revenue
($)
15.1
15.4
Recovery
rate (% )
103
102
The 1992 prices for special cash
services are unchanged from their 1991
levels.
Price and Service Level Changes
The Board has approved a
modification of the approval procedures
for price and service level changes
under which the Board will authorize
the Reserve Banks to make, without
prior Board review, certain minor price
and service level changes that are
within specified parameters established
by the Board. These categories of price
and service level changes are currently
approved under delegated authority
from the Board to the Director of the
Division of Reserve Bank Operations
and Payment Systems. This modification
of the approval procedures will lower
administrative burdens and costs and
will permit the Reserve Banks to fine
tune services to meet customer needs In
a more timely manner. The approved
preauthorized categories of 1992 price
and several level changes are as
follows:
(1)
Addition or deletion of an
institution from an existing forward
collection group sort program, provided
that the addition or deletion does not
(2) Deletion of a forward collection
group sort where the volume of deposits
is very low and the service is not viable;
(3) Addition of a new group sort at the
existing fee if the new group sort has a
comparable item-pass ratio and deposit
deadline to current group sorts;
(4) Improvement of a forward
collection or return deposit deadline by
one hour or less; and
(5) Addition or deletion of an
institution from a check collection price
tier.
Competitive Impact Analysis
Ry order of the Board of G overnors of the
Federal Reserve System, O ctober 31,1991.
W illiam W. W iles,
Table
of the Board.
2— D e r i v a t i o n
of the
[millions ot dollars— average tor year]
Short-term assets:
Imputed reserve require
ment on clearing bal
ances...................................
Investment in marketable
securities............................
Receivables'.........................
Materials and supplies'......
Prepaid e x pe nses'..............
Items in process of col
lection..................................
Total short-term assets...
All operational and legal changes
considered by the Board that have a
substantial effect on payments system
participants are subject to the
competitive impact analysis described
in the March 1990 policy statement “The
Federal Reserve in the Payments
System" (55 FR 11648, March 29,1990).
In this analysis, the Board assesses
whether the proposed change would
have a direct and materials adverse
effect on the ability of other service
providers to compete effectively with
the Federal Reserve in providing similar
services due to differing legal powers or
constraints or due to a dominant market
position of the Federal Reserve deriving
from such legal differences. All
operational or legal changes having a
substantial effect on payments system
participants are subject to a competitive
impact analysis. The Board believes that
the proposed changes would not have a
substantial effect on payments system
participants and would not have a direct
and material adverse effect on the
ability of other service providers to
compete effectively with the Federal
Reserve in providing similar services.
Secretory
T a b l e 1— C o m p a r is o n o f P r o F o rm a
Ba la n c e S h e e t s fo r F e d e r a l R e
s e r v e P r ic e d S e r v i c e s
Long-term assets:
Premises 12...........................
Furniture and equipment'...
Leasehold improvements
and long-term prepayments*.................................
Capital leases........................
$372.0
$244.1
2,728.0
32.7
5.6
11.2
1,790.4
32.8
8.2
13.7
2,868.1
3,637.5
$6,017.6
$5,726.7
341.0
139.2
305.3
1468
33.9
0.1
23.9
0.3
Total long-term assets....
514.2
476.3
$6,531.8
$6,203.0
.......
......
3,511.4
2,456.7
49.5
2,466.7
3,205.3
547
Total short-term liabilities...................................
$6,017.6
$5,726.7
Long-term liabilities:
Obligations under capital
leases.................................
Long-term debt 3..................
0.1
170.4
0.3
154.8
Short-term liabilities:
Clearing balances and
balances arising from
early credit of uncollected items...........
Deferred credit items
Short-term d e b t3......
Total long term liabilities............ ......................
170.5
155.1
Total liabilities.................... .......
Equity 3......................... ...............
$6,188.1
343.7
$5,881 8
321 2
T otal liabilities and equity.......
$6,531 8
$6,2030
1 Financed through PSAF; other assets are self
financing.
2 Includes allocations of Board of Governors’
assets to priced services of $0.3 million for 1992
and $0.5 miliion for 1991.
3 Imputed figures; represent the source of financ
ing for certain priced services assets.
Note: Details may not add to totals due to round
ing.
1992 PSAF
A. Assets to be Financed'
Short-term ........................................................................................................................
Long term2 ........................................................................................................
$ 49.5
514.1
B. Weighted Average Cost
1. Capital Structure3
Short-term Debt....................................................................................................................................
.............................
Long-term D e b t.......................................................................................................................
.............................
Equity..........................................................................................................................................................................................................................
8 .8 %
30.2%
61 .0%
1991
atal assets................................
[million of dollars]
6
1992
T a b l e 2 — D e r i v a t i o n o f t h e 1992 PSAF— Continued
[million of dollars]
2 Financing Rates/Costs*
Short-term Debt......................................................................................................................................................................................................
Long-term D e b t......................................................................................................................................................................................................
Pre-tax Equity4........................................................................................................................................................................................................
3. Elements of Capita! Costs
Short-term D e b t-........ - ..........................................................................................................................................................................................
Long-term.......................................................................................... „ ....................................................................................................................
7 .9 %
9 .2 %
10.7%
$ 48.5
170.4
343.7
X
X
X
= $ 3.9
=
15.7
36.8
7.9 %
92%
10.7%
$ 56.4
C. Other Required P SA F Recoveries
Sales Ta x e s .............................................................................................................................................................................................................
Federal Deposit Insurance Assessm ent..........................................................................................................................................................
Board of Governors Expenses...........................................................................................................................................................................
$ 10.2
11.4
1.9
$ 23.5
$ 79.9
D. Total PSA F Recoveries
14.2%
As a percent of capital..........................................................................................................................................................................................
As a percent of expenses 5.................................................................................................................................................................................
I
13.2%
1 Priced service asset base is based on the direct determination of assets method.
2 Consists of total long-term assets less capital leases, which are self financing.
2 All short-term assets are assumed to be financed by short-term debt. Of the total long-term assets, 33 percent are assumed to be financed by long-term debt
and 67 percent by equity.
4 Th e pre-tax rate of return on equity is based on the average after-tax rate of return on equity, adjusted by the effective tax rate to yield the pre-tax rate of return
on equity for each bank holding company for each year. These data are then averaged over five years to yield the pre-tax return on equity for use in the PSAF.
6 Systemwide 1992 budgeted priced service expenses less shipping are $605.4 million.
T a b l e 3—C h a n g e s b e t w e e n 1992
1991 PSAF C o m p o n e n t s
1992
A.
Assets to be Financed
(millions of dollars)
Short-term.................................
Long-term .................................
$49.5
514.1
Total....................................... $563.6
B. Cost of Capital
Short-term Debt Rate............
7.9 %
Long-term Debt R a te ............
9 .2 %
Pre-tax Return on Equity......
10.7%
Weighted Average Long
term .......................................
T a b l e 3— C h a n g e s b e t w e e n 1992 a n d
1991 PSAF C o m p o n e n t s — Continued
an d
1991
$54.7
476.0
$530.7
8 .6 %
9.4 %
14.5%
Cost of Capital........- ..........
C. Tax Rate
D. Capita! Structure
Short-term D ebt......................
Long-term Debt.......................
Equity..........................................
E. Other Required PSA F Re
coveries (millions of dol
lars).
Sales Taxes..............................
T a b l e 4— C o m pu ta tio n
of
C a p it a l A d e q u a c y
1992
1991
10.2%
29 .4%
12.9%
30.5%
8 .8 %
30.2%
61.0%
10.3%
29.2%
60 .5%
$10.2
fo r
T a b l e 3—C h a n g e s b e t w e e n 1992 and
1991 PSAF C o m p o n e n t s — Continued
Federal Deposit Insurance
Assessment.........................
Board of Governors Ex
penses...................................
F. Total PSAF
Required Recovery.................
As Percent of Capital............
As Percent of Expenses.......
1992
1991
11.4
9.2
1.9
2.0
$79.9
14.2%
13.2%
$85.8
16.2%
14.7%
$8.7
F e d e r a l R e s e r v e P r ic e d S e r v ic e s
[millions of dollars]
Assets
Imputed reserve requirement on clearing balances...................................... ........................................................................................................
Investment in marketable securities............................................................................................................................................................................
Receivables.............................................................. .......................................................................................................... .............................................
Materials and supplies.....................................................................................................................................................................................................
Prepaid expenses.............................................................................................................................................................................................................
Items in process of collection......................................................................................................................................................................................
Premises...................................................................................... .......................................................................................................................................
Furniture and equipment............................................................ ...................................................................................................................................
Leases & long-term prepayments................................................................................................................................................................................
$372.0
2,728.0
32.7
5.6
11.2
2.868.1
341.0
139.2
34.0
To ta l.............................................................. .............................................. ...............................................................................................................
Imputed Equity for 1992....................................................................................... .........................................................................................................
Capital to Risk-Weighted Assets..................................................................................................................................................................................
$6,531.8
$343.7
30.9%
7
Risk
-weight
0.0
0.0
0.2
1.0
1.0
0.2
1.0
1.0
1.0
Weighted
assets
$0.0
0.0
6.5
5.6
11.2
573.6
341.0
139.2
34.0
$1,111.1
@FedFRASER